When people learn no tools of judgment and merely follow their hopes, the seeds of political manipulation are sown. Stephen Jay Gold

Dear Investor,

New research shows bond market predits better than anything else -that's bad news... but then again why let facts get in the way of hope? WSJ: A warning from the bond market. http://tinyurl.com/croo2x

Yesterday it was leaked that the stress test' of the major banks would be delayed and that the administation would batch them up and release them at the same time - now this leak from the New York Times: http://tinyurl.com/dc3h75

What I find amazing is that the administration really thinks it can play these types of games with us again and again.....reminds me of the qoute: You can fool most of the people most of the time.... It is clearly an adminstration running out of time whom is behind such moves... I am sitting with the cash book almost full and awaiting the "true nature" of this market - although today good news is everywhere is it not?

The one news item which does matter is the big improvement in US Trade deficit which at least justifies my very bullish view on the US dollar http://tinyurl.com/dyzlt7

The main reason all year for my bullishness has been the fact that the falling current account deficit (and for the non-economists, the C/A includes trade & another important item: invisibles (the overseas earnings, royalties - a favorite "tax item" which Obama will hit soon)) - a smaller US current account equals much better balance in the world "monetary flow" - as the size of positive and negative current accounts sums up to...... (drum rolls.... ZERO)....

This is the REAL REASON why China, Singapore, Vietnam, Eastern Europe, Europe, UK et al is having major issues - the US consumer (who was the current account deficit) is bankrupt - the next move will be IMPROVEMENT in current account for the US - and much, much small surpluses in the above countries, but mainly EMG risk, so.... the "strong number" today hides further unwinding of imbalances AND it substract from global growth/credit...and finally should make the US Dollar much much more expensive... but as always I am merely simple Danish farmer writing from a sunfilled seaside in Denmark..

Finally, today is FULL MOON, my learned friends all think this is significant indicator of peak or trough in the market, for this simple guy, though it merely tells me too many people have no conviction.......

Positions all the same - losing on the short equity, gaining on long USD...and short EUR,SEK......making ok money still on short gold...... cash reserves remains high....and the powder will not be used next few days.... I am contemplating - and being as slows as I am....it could be a while before I re-engineer my outlook....themes remains the same as yday's post..and targets.....with no predicitve powers are:

• EURUSD in 1.1000
• Gold in 700 (Gold is the crude of 2009)
• Europe to have deflation before end of Q3
• EPS will be maximum 35 USD this year...
• Housing prices still 25-35% too high in most of Europe...
• Steen Jakobsen will become positive once this year..

Safe trading,

Steen

“A man who pays his bills on time is soon forgotten” Oscar Wilde

Dear Investors and Readers,

There has been considerable "time lack" in my updates and blog - this WILL be corrected starting tonight..... but the new job has meant considerable NON-INVESTMENT time ...but no excuses..!!!!

Some questions has been raised on the portfolio going from 90 pc cash to 55-60 pc mentioned in last week Investment Meeting - it calls for an explanation:

From my Pura Alpha Macro perspective I am, and continues to be 90 pc allocated to cash..mainly..and as of today I will be buying some bonds to take money out of cash.....however in my new role, which the Investment Meetings was taken from, we are born with minimum exposures of 25-30% at ALL TIMES, meaning to get "translation" that you deduct this "embedded" exposure to get old... but from now on.. I will on this page commit to my pure alpha not to confuse anyone.......and this is how I allocate both Alpha Macro and more importantly my PA money - even outside my own funds.

OVERALL:

The Geithner + QE plan was another week with another couple of trillions spend.

My colleagues are ALL looking for momentum upside, I am FIRMLY remaining out of directional exposure till after the April 2nd meeting - Yes, I could have had 26% of the low with perfect timing, but its 26% of a very, very small number, having had an excellent 2008 I am not rushing into a market which to reminds me of Japan more and more... check this chart from dshort.com (click to enlarge chart)





To me the future looks like the Nikkei in 1980s/1990s - lots of false starts, a low not in yet, and lack of tracktion.

Obama is less popular than Bush at similar time in the Presidentials cycle, bankers working in New York will soon pay 102 pc tax!!! - the 90 pc "jealousy tax" plus 12.5% NY State tax.

The Local states are bankrupt and finally, so much for tranperency in the new plan:

Do you know ANY bank willing to trade some "toxic material" in the 30s when it is on the book as 70s on the Dollar? I do not - then in April the Stress test will be in play.....which will show... what? Based on which price matrix? And finally, selling this plan as private/public where the private sector gets cheap financing, no downside but share upside does not strike me as being politically what the good Senators and Congressmen(women) wants to hear - but the usual suspects are out in force: Blackrock, Pimco, Buffet....so if it goes like the other times....then

Finally if this market is "bullish" ...then:

1. Why is Gold coming off? I thought this was the "reflation" dynamo? - I see gold in 850 next week...
2. US Dollar - why is it stronger?--- the correlation broken? No! It caught up to rate differentials..indicating need for +1.35s... now its back to massively improving US Current Account and home bias - US has the biggest home bias of all, their mutual funds having primarily invested overseas plus Obama threathning to tax overseas earnings... (I am again long US dollar... target: Sub 1.2000
3. TD is getting set-up on(for top): S&P, NASDAQ, DJIA, RUT, DAX, TRAN, SOX, XBD, BKX, CRY (http://www.tomdemark.com/)
4. Earnings cycle... we are still way of low in cycle....
5. Non performing private loans.. we have not even started, AMEX being the first to declare "nuclear waste" on private consumers even giving you money to close down your credit card.

No, it's still cautious for me, I am however pretty much left alone, maybe with the exception of the parma bears like Robini et al, but as Grouch Marx once supposely said: "I will belong to no club that wants me as a member"....

Safe trading,

Steen

A bank is a place that will lend you money if you can prove that you don't need it. Bob Hope

Dear Investor,

Admitted! I could not help using the above qoute from Bob Hope. ;-)

This is a Saturday afternoon mental cleaning for me, this week proved to me - and it seems also the market that this crisis will be here for a while. Losing more than 500.000 jobs have only happend eight time since the series began in 1940 and we have had four of them now!

31 mio. Americans needs food stamps http://snurl.com/dbxwo ....

The AIG story continues and it seems as per usual the more you look into this failure the more it becomes clear that the administration is pursuing a policy which at best can be called: "keeping financial system a live at all cost", and at worst: "incompetence and action on the fringe of corruption"...I will let you be the judge, but do read this link: http://snurl.com/dby0f

I had long conversation with my hedge fund friend from the US the other day, let's call him E.....and during the conversation it became clear that small part of information we had gathered over the last quarter are coming together into a relatively intimidating outlook for the world economy between now and April 2nd. (Why April 2nd I will come back to...)

This is the time....to be long cash

Time is running out for the policy makers and the politicians. They have now again and again tried to get the confidence and the economy going by printing more money and making promises.
Too high debt to equity ratio's was the reason for us being in trouble in the first place, so using more debt to deal with debt is hardly going to work!

Now they pursue a policy which my friend E likened to a beautiful analogy: It is like putting a parachute on a rock going towards earth! - in other words.. gravity will work - you can slow the process but not the ultimate result.....

Everyone, no longer not only me, is disappointed in Obama, and more to the point about the economic/business "dynamic duo" of Geithner/Summers.

Geithner is having such a bad karma, that even showing his face on TV makes the market go down immediately - one has to think this is either engineered by Summers, i.e making Geithner fall-guy, or we will see rotation around mid-term election..both ways Geithner has lost not only Wall Street's trust, the politicians but also it seems Federal Reserves, his old neighbourhood.

The new "hope" in town is the Chinese miracle - China is now pumping money into commodities and strategic alliances in order to maintain their job levels- what is the point of being Planned Economy if not to create jobs, however futile some of them are ?.....but people forget that this is no real plan B.

China set themselves up as the world factory - the US was the world consumer - now the "customer", the US consumer is bankrupt - this means production capacity will have to go down in China - China simply did not have a plan B.

They are now drawing down their SAVINGS creating infrastructure jobs - which coincides with US stimulus, leaving the impression something good is happening to global demand - but.....this is a pocket of momentum only to be replaced by the rock making a landing.....

The US saving rate is rising and fast - this means the US current account is improving at quickest pace in decades, but on the other side of the US deficit sits the Chinese equivalent surplus, so...the US consumer having gone bankrupt means China will have less export growth.......

This is one of the main reason for my outright bullishness of the US dollar - yes it is FIAT based but so are all the other major currencies, but the velocity of US current account disminishing is a very constructive component on its external value....

Now to April 2nd - the London/Gordon Brown G-20 meeting http://snurl.com/dbz0k
Combining almost 10% unemployment in the US, with a Europe where the P.I.G.S (Portugal, Italy, Greece & Spain) but also EEC countries are having problems rolling over their debt makes for one interesting meeting where everyone NEED TO FIND A SOLUTION.

I, for one, do not ever expect anything from these kind of summits, but for once the stakes of NOT MAKING - Plaza Accord (http://snurl.com/dbz4y) like solutions will be dramtic (minus 25% on the market and total break-down in EEC currencies)....
The CDS market plus Lehman have crystalized the failure of the EU system, where its biggest flaw being the lack of a European Treasury to coordinate fiscal- and monetary implimentations of policies.

The sovereign CDS market have increased the funding cost of the PIGS, which takes away the "only" real advantage of being in the EU (For everyone to have pretty much same credit rating, and hence funding cost)

So.... where does this leave me, my funds and the world? Well, there is NO REASON in the world to do anything ahead of April 2nd

Either they finally get some real decisions which is focused on not slowing the rocks path to earth but for blowing up the rock (Merton out with some rather "controversial ideas: http://snurl.com/dbzai) or we will have "blood in the streets".....the final melt-down before markets find a new better equilibrium.

I recommend maintaining the 75% cash (if not more)- and to deploy the rest in optionality - risk reversal on equities-- (Im short STOXX50 & S&P) selling equivalent of 650 puts buying zero cost upside just in case...)

Shorting EUR seems almost a certainty to me - but buying some short-term proctection around April 2nd makes sense...

=======================================================
Targets:
=======================================================

EURUSD: 1.2000, then 1.1000 and if April 2nd failed then sub 1.000

S&P: Our revised target of 690 now reached - new target remain insisde 625/650.....for cyclical low.....

10 Y notes: Below 2.000 still

Central banks: All going to ZERO and Quantative Easing.

Europe will feel the worst pain, and the EEC currencies without April 2nd solution is doomed, and could be followed by PIGS.....

Yes, it is not a nice note this one, but in a time where all we have had is HOPE, HOPE and more HOPE I wish to explain why this is bad and could get worse, but then again trading around 690 this week-end another 100 points of downside is not big.......

There are great deals to be done on the back of this crisis, but they are ad-hoc in nature and not based on a market generally offering value.....


We are fairly priced for the first time in years, if not decades, but we need to get to the FIRE SALE levels for the money to leave the safe place of state guarenteed saving accounts.

Time remains the great healer...but for now.. cash is king...and I will bet you safe trading and a nice week-end.
Steen

I have left orders to be awakened at any time in case of national emergency, even if I'm in a cabinet meeting. Ronal Reagan

Good friend of mine gave me "Reagan's path to Victory" (http://tinyurl.com/cena6b) as parting gift. Never have Reagan been more relevant:

1. We have a President O who publicly have said he wants to mold his Presidency after Reagan. (But unlike Reagan all he does is talk, talk and more talk)

2. Reagan was always belittled intellectually, where as Obama probably gets more credit than he deserves. (Where is he on ANY key issues - except on the "voters" side?)

3. I have left orders to be awakened at any time in case of national emergency, even if I'm in a cabinet meeting. If there is one time where the new "Reagan" (Prez O) needs to awakened its now! He is getting bad advice, old advice and his hangers on in Cabinet is fast asleep at the wheel and even formed NY Fed Governor Geithner has managed to lose Fed's support - Great work!

Less than two month ago the Motor City said they only needed 15 bln. US Dollar to safe their bacon - now they are back with cap in hand and asking for longer pay-back time plus more money - nice one - who did not see this coming ? Let me see? All of the always bullish crowd and ALL of Washington.

The politicians in Washington should be ashamed of themselves - they sit a tirade and parades bank CEO's in front of them as if they themselves had divine intervention on how to solve these issues, meanwhile in REAL TRADING LAND, we are close to breaking day-low-close and even intra-day-low cyclical lows in DOW and shortly in S&P.....

It is really working well for Washington and Obama, is it not?

Reminds me of my favourite qoute about this financial crisis: "The definiton of Insanity: Doing the same experiment over-and-over again expecting different results"

(* That quote about doing the same thing over and over and expecting different results is variously attributed to Albert Einstein (who I always believed was its author), Benjamin Franklin (AlterNet boss Don Hazen's pick), Rudyard Kipling, Rita Mae Brown and an ancient Chinese proverb)

Strategy:

S&P: Short - waiting for confirmation break down..... the new scandale in Texas shows us how naive we all are, and how this is FAR,FAR,FAR from over.... target minimum: 620/690....

Wrong: if we trade above 852.00......on close..

EURUSD: Breaking down as we speak.... Europe is falling apart and the dogmatic Trichet and his Merry Men will GUARANTEE we get ZERO pct interest rate (despite him denying it!)....

Looking for 1.2000 minimum - outragous call remains for 1.0000 - East Europe is heavy price to pay......Look for Basis-swaps in EURUSD, European banks NEEDS US dollar funding again...

TIPS: What a joke-- break-even @ 115 bps! (Inflation built-in)
I want some of that "crack" they are smoking --- There is NO INFLATION this year... the printing of the money only goes to displace some of the massive net wealth lost in the market.

We are 50% down on investors peak asset valuation!!!! That's a tidy 25-30 trln. US dollar of less wealth addv to this another 20 trln. US dollar of less credit (Average balance sheet leverage times loss provisions by banks (2 trln. conservatively..)

SELL TIPS!!!!!!! Especially as Gross and his happy campers in the yield-bubble-camp is long inflation and wrong....

OVERALL: Still got 75% in cash - 25% aggressively placed negatively in the market..

Took profit in Gold.. never liked momentum/consensus trades... could be wrong... but..square..

Off to sushi dinner..

Safe trading,

Steen

A complex system that works is invariably found to have evolved from a simple system that works.

A complex system that works is invariably found to have evolved from a simple system that works. John Gaule

It could not be said more elegantly - for something as complexed as a financial system to work we need to get back to simplicity! Design, at least Scandinavian, is based on simplicity and functionality - maybe finance needs to take it cue from design rather than mindless policiticans and policy makers.

I did guest hosting on CNBC this morning - always a good and lively crew in London, but I was somewhat surprised at how EVERYONE is arguing in the past! Listen - Its over! New paradigme, we are now in period of transistion for both the way the markets and banks works, but also for valuation metrics.

The back-fitting and mechanical approach to trading is out/done/busted! In is: risk management, grey hair (I did warn you all about this trend!), alpha and directional players with a view.

The world is full of opportunitites let me mention a few things:

• UK banks trades almost a tangible values! Something I said long ago Citi and other should as well. (Long RBS, HSBC, Danske)


• Cash rich companies like Apple, Microsoft, VISA, Mastercard trading at multi-year low multiples, then add Pharma (Novo, Pfizer), Maersk(shipping/oil) and you have value proporsitions not seen in 50, yes even 70 years!


• High Yield US is 1.000 bps above US government - this means 50-60 pct default versus all-time high of 36-38% (We do need funding rates down before this becomes steal, but it is getting closer + (Benchmark you can use HYG US)


• Bank loans - trading at 70+80 cents in the Dollar


• Private Equity deals is extremely cheap


• Banks are AAA (In the case of Denmark at least)


• Pakistan Sovereign debt trading @ 85 pct chance of default

Some things are lacking as well:

• Housing market still has 4.5 mio. unsold homes,


• The crisis is moving from financial to real economy meaning more savings less spending


• Bank getting recapitalized helps, but they still need to raise more private capital


• The "plan" will mean crowding out private capital and most likely creating unfair competitons between public and private banks


• US election. Whoever wins is a loser as they will have to wind down spending, increase taxes..... and implement stupid regulatory frameworks

So what I am trying to say remains:

This is going to be like in the 1970s:

(Note: Any resemblance with my Senior Partner Lars Christensen on the above picture is random - for the record Paul Breitner is much better looking!)

Disco, Paul Breitner hair, color nightmare, big government(read useless), inflation pressure, non+performance of equity (broadbased indicies), now even Brown wants to do Bretton Wood which was last "seen" in the 1970s - so ...my unqualifed, non-predictive response remains:

• If this is going to be recession then its 1150-1200 in SnP in Q4+Q1 + as market has priced the R-word, plus manager underweight stock benchmarks


• If the nasty D-word, as in depression is what we will have then 765.00 our ultimate target comes into play

The fact remains --- Below 1000 in SnP there is 5-7 pct return for cash generating, margin business, below 850 ish its oversold and cheap.. 1100-1300 becomes a game of where economies are going, how fast rates will normalise and how much Bernanke et al can distroy with their mistimed regulation and management.

In closing I will note two more things:

1. Everyone I know wants to sell rallies, like the whole CNBC crew, my own sales-traders, and analysts -- they are like Cramer - all into cash! Now! The balanced portfolio should add stocks now not sell....


2. 3.000, yes 3.000 stocks had Morning Star formation in the Us yesterday......(http://www.traderslog.com/morning-star.htm

Remember in chinese language the sign for crisis and opportunity is the same.

Be safe,

Steen

Credit crunch or not..? This remind me of 1998

I did internal Saxo Bank interview and instead of printing it I will leave it for you in link:

http://www.saxobank.com/?id=993

Steen